Orbán lays foundation for cheap energy tussle at EU

Orbán is convinced Brussels still wants to reverse the policy of cutting utility costs that helped the Hungarian people to clearly lower energy prices. They have been cut in two steps since the beginning of 2013 by exactly 20%. The third step will follow with a distinction this year: there was a new cost cut for natural gas prices introduced in April, making it 6.5% cheaper for private households.
There will be further reductions for electricity (5.7% from September) and central heating (3.3% from October). This approach along with the timing of the tariff reductions gives hope that the forced energy policy will come to an end and in future prices will be based on the calculations of experts, who take real circumstances into account.
Orbán named the question of energy prices as the most important topic for the upcoming two or three decades in his speech at the laying of the foundation stone of a new power plant for the Prinzhorn-Group in Dunaújváros. “If a company cannot produce its energy cheap it will not manage to stay competitive,” he said.
The PM expects “hard debates” and “tough decisions” at the upcoming European Union summit, because the EU is threatening to fall back under the level of the United States in the competition of reduced energy prices. Hungary will amend the policy of utility cost cutting for the industrial and commercial sector as well, because “if the EU will not stand up for the reducing of energy prices, Hungary has to take care of it with its own policies, because that will be the only way for the Hungarian economy to stay competitive”.
In March Orbán announced for the first time that Hungary wants to offer the lowest energy prices in all Europe. Nuclear energy would be an important tool in this process: the huge Paks 2 project – to be realised with the help of Russian technology again – enlarging the capacity of the single Hungarian nuclear power plant will be able to produce a price reduction in electric energy of about 13%, according to the estimates of the government (whose professional background seems to be unspecified up to this moment).
According to data collected by the International Energy Authority, the US accumulated a price advantage of about one third over European energy prices – this is the gap that Orbán aims to close. He expressed at a meeting with British Prime Minister David Cameron last year that cheap energy is the foundation of international competitiveness; this is why we cannot “agree with those people who are discriminating nuclear energy nowadays”. Without getting any more specific, he also expressed his dissatisfaction with the nuclear phase-out happening in Germany.
Hungary’s demand on electricity is covered up to about 40% from energy coming from Paks. Its four reactors however – after their life expectancy has been successfully prolonged and their efficiency maximised – will be removed from the network with final effect between 2032 and 2037. Due to the ageing of the Hungarian power plants the country will already lose about 4,000 MW of the current total 9,000 MW output, which will be party compensated with 2,400MW in the Paks 2 nuclear power plant (where Rosatom will build two modern reactors each with a capacity of 1,200 MW, which will be annexed to the network by 2023).
There is less focus on the development of alternative energy sources, which only provide about 10% of the energy demand in Hungary today. Budapest took on the challenge according to the European energy strategy program to raise the ratio of renewable energy sources up to 13% by 2020. This looks a little too ambitious, since the local potential of solar and geothermal energy, but also the biomass coming from the agricultural industry, is still in an early development phase in this country. Too bad, but the state intervention in energy prices does not help to promote innovative technologies either.
If Hungary is dreaming about competitive energy prices and less dependency on foreign energy sources, it has to consider local brown coal in the third place of important energy sources. Burning more coal would contradict the political targets regarding climate change, but within a skilfully managed energy mix coal could still play an important role in keeping energy prices at bay.
Szilárd Németh, the Fidesz representative charged by the party to watch over the policy of utility cost cutting, is proud to announce that the budget of Hungarian households is being burdened below the European average, thanks to the Fidesz tariff decreases. The experts prefer to use the purchase power standard (PPS) as a more expressive way of comparison. Because what good is the lowest energy price for a citizen in Budapest when Berliners or Viennese have a much higher disposable income?
Considering purchasing power, Hungary has gained some advantage thanks to the policy of cutting utility costs, for example Hungarian gas prices are only four-fifths of the European purchasing power. However, if we look at electricity the situation is just the opposite, because electricity prices are still one sixth above the European PPS value.
The industrial energy prices will be helped by regulating the so-called non-profit utility companies in new legislation. For this reason state-owned energy holding company MVM is sending a new utility company into the market, to stimulate competition against the German, French and Italian energy giants, which have been dominating the local market since the privatisation of the energy market in the 1990s.
Because, as Németh complained, while the investors in the sector are taking their profits “out of the country on a wheelbarrow”, MVM would reinvest its profits 100% in providing a continuously improving service. Consequently, 2014 promises to be another exciting year in terms of energy prices.
The direction of the new national energy policy to be followed by the Orbán government looks quite clearly outlined. He defined the path to follow clearly; any opposition from Brussels will be swept away by him in his usual original style.
We may suspect a deal with Moscow in the background if we start to think about how he wants to become price leader in a product that others control, in a country that is poor in its own resources. If there is a deal like this, the parties are doing well keeping it secret.
This is why for ordinary citizens it remains a mystery how Orbán wants to compete with gas prices in Romania or electricity prices in Bulgaria to make Hungary the European energy price leader. Not to mention the daring comparison with the level of overseas energy prices…